At a time when Washington is promoting private investment in roads, bridges and other infrastructure, a 21-mile stretch of highway in Indiana provides what critics say is a cautionary tale. The project, a partnership between the state and private investors, was signed by Vice President Mike Pence in 2014 when he was the state’s governor. It is two years behind schedule and only 60% built. The state is in the process of taking it over and will have to issue debt to finish it. …

President Donald Trump’s $1 trillion plan to rebuild America’s infrastructure may be unprecedented in its size and ambition — but it promotes a controversial model championed by Vice President Mike Pence in his home state of Indiana. The Hoosier flavor is hardly surprising: After his gubernatorial experience with road privatization, Pence has been a public face of the White House initiative, and executives from financial firms that helped privatize Indiana’s roads are now the Trump administration officials sculpting the details of the national plan. As that federal proposal now moves forward, Indiana’s experience with infrastructure privatization has become a political Rorschach test. Pence and his allies are extolling Indiana’s record selling control of major roads to private firms as an ideal model, arguing that such public-private partnerships prompted corporations to invest money in Indiana infrastructure that taxpayers would otherwise have had to sponsor. …

Since we’ve written frequently about the contentious issue of toll roads, we can’t let pass without notice Monday’s news that the company operating the Indiana Toll Road has filed for bankruptcy. In 2006, under Republican Gov. Mitch Daniels, the state entered into a 75-year lease with a partnership formed by the Spanish firm Cintra and the Australian Macquarie Infrastructure Group. The state got a lump-sum payment of $3.8 billion. The partnership formed a company, which now operates the toll road that stretches across the northern part of the state. According to a Congressional Research Service report, after 2010, toll increases were limited to the greater of 2 percent, the percentage change in the Consumer Price Index, or the percentage increase in per capita nominal Gross Domestic Product. Caitlin Devitt who has a good account of the fallout from the bankruptcy filing in The Bond Buyer, quotes Standard & Poor’s analyst Anne Selting who said toll roads are among the riskier public-private partnerships because “they’re obviously completely dependent on volume and user projections.”

The operator of the Indiana Toll Road, owned by affiliates of Macquarie Group Ltd. (MQG) and Ferrovial SA (FER), sought bankruptcy protection with a creditor-supported restructuring plan after dwindling traffic soured a $3.8 billion bet on a 75-year lease. The company listed assets and liabilities of more than $1 billion each in its Chapter 11 filing yesterday in Chicago bankruptcy court. The company has an estimated $6.3 billion in secured obligations when including projected amounts of interest through next August, according to court papers.

Indiana officials assured Hoosiers that the bankruptcy of the private operator of the Indiana Toll Road would not hurt the state, but one analyst warned that “aggressive” toll rates in the original lease could spell long-term problems.

Reports out of Indiana suggest that the foreign operators of the Indiana Toll Road will soon be filing for bankruptcy in an attempt to restructure more $6 billion in debt. The announcement comes just eight years into the Indiana Toll Road Concession Co.’s 75-year lease of the roadway and despite a more than 176 percent toll increase on five-axle trucks. The ITRCC, which consists of Cintra of Spain and Macquarie of Australia, paid $3.85 billion to lease the 157-mile toll road in 2006, but owes approximately $6 billion in debts according to the Wall Street Journal. The Journal says the company recently struck a deal with its largest creditors to restructure its debts and will declare Chapter 11 bankruptcy protections as part of the negotiations. …

A state agency says it is monitoring the Indiana Toll Road operator’s finances as it works to make an upcoming debt payment on the financing of its $3.8 billion lease payment to the state eight years ago. The Indiana Toll Road Oversight Board has asked the Spanish-Australian investor group Cintra-Macquarie about the status of the payment it owes this month after state officials made similar inquiries after news reports that it was struggling last year to make an interest payment, board Director James McGoff told The Times of Munster….

The Indiana Finance Authority continues to monitor the financial difficulties of the Indiana Toll Road, where operators who hold the 75-year lease are struggling to meet a June debt payment. Indiana Toll Road Oversight Director James McGoff said the IFA had inquired of the Toll Road’s operators following news reports last year they were struggling to meet a December interest payment. The Toll Road Oversight Board has now inquired about the June payment. … Cintra, a Spanish firm, and Macquarie Group, of Australia, paid the state of Indiana $3.8 billion in 2006 in exchange for the right to operate the 157-mile road and collect all tolls for 75 years. But traffic on the road has never lived up to expectations, taking a direct hit almost immediately from the recession that started at the end of 2007…. The Toll Road turns an operating profit on tolls, but it has struggled under a mountain of debt now calculated at $4.4 billion in the most recent annual report from Macquarie Atlas Roads. Some $3.9 billion of debt matures in 12 months and will have to be refinanced by June 2015, according to the same report. The concession agreement the state signed with the consortium formed by Cintra and Macquarie Group in 2006 allows the state to take various actions in cases where the Toll Road operator misses payments to creditors, defaults, or goes bankrupt. In a worst-case scenario for investors, that includes Indiana basically serving the Toll Road operators with an eviction notice. “If they default, the road comes back to us,” McGoff said….

…The Wall Street Journal is reporting the Indiana Toll Road is again facing pressure from bondholders, with its controlling partners facing a possible debt restructuring, perhaps in Chapter 11 bankruptcy. The Journal in an article last week cited people familiar with the matter in reporting a European bank recently sold $500 million of Indiana Toll Road debt to outside investors for 60 cents on the dollar….

Eleven million trucks. That’s how many 18-wheelers needed to rumble across northern Indiana in 2010 for the state’s 157-mile toll road to break even. Unfortunately, only about half that many did and the road came up $209 million short. … Now five years old, the Indiana deal has yet to turn a profit, or break even.

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